FinEst Link: Considerations for next steps of the project and key milestones
FINEST
DISCUSSION DOCUMENT | April 2018
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Contents
• Executive summary
• Overview of the FinEst Link project
• Learnings from other megaprojects
• Considerations for the next project phase for FinEst Link
• The immediate next steps for FinEst Link
• Appendix
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Executive summary
• FinEst Link is in the final stages of the feasibility assessment with focus on next steps to ensure continuity of the project
– The feasibility assessment has concluded that the FinEst Link project is fundamentally implementable, with economic feasibility as the key issue that needs to be solved
– The FinEst Link project has strong political support from both involved countries, but no firm go-live decision yet – target tunnel opening is 2040-2045
– A taskforce has been set up to create an overall plan and immediate next steps going forward in order to ensure continuity
– There are other projects affecting the FinEst Link, which should be taken into account in the planning phase to cater for potential cooperation opportunities in the future
• Experience from previous megaprojects stresses the importance of project team capabilities, the right culture from the outset, well-planned risk mitigation and proactive communication
– Project should have a clear view on required capabilities for each phase, ranging from long-term dedicated leadership, knowledgeable core team and utilization of additional experts when needed
– Continuous challenger mindset to question status quo ensures continuous improvement and identification of optimization opportunities throughout the project
– Communicate and keep the business case visible in the minds of stakeholders including a set-up to mitigate risks to ensure investor attractiveness
– Transparency is key to ensuring support from the wider stakeholder community – utilize public hearings and other means for frequent communications
• The magnitude, complexity level and international nature of the FinEst project drive the project’s agenda for the near term
– Secure a project team with required capabilities and set up a robust governance structure
– Put in place master planning and create a first draft of the plan to ensure a complete view of upcoming milestones at every stage of the project
– Develop a robust stakeholder management plan and process to ensure transparent communication
– Define ownership structure and financing model, including the revenue generation model (from ticket sales and possible subsidies) to attract investors
– Create a risk management process to ensure continuous risk identification and mitigation throughout the project
• The main immediate next step for FinEst is to establish solid governance and a full time project team
– The initial timeline for 2018-2020 shows that considerable effort is needed already in 2018 to be able to start planning and permitting in 2019
– To ensure successful launch of the concepting phase, FinEst Link should invest in a full time core team and put in place the initial governance structure
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Contents
• Executive summary
• Overview of the FinEst Link project
• Learnings from other megaprojects
• Considerations for the next project phase for FinEst Link
• The immediate next steps for FinEst Link
• Appendix
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FinEst is currently in the final stages of the feasibility assessment with focus on next steps to ensure continuity of the project
SOURCE: RFP documents, FinEstLink website
Objective of the report and main deliverablesBackground and FinEst objectives
• The goal of the FinEst Link initiative is to develop commuter mobility between Helsinki and Tallinn in order to deepen the economic co-operation between Finland and Estonia
• As a part of this initiative the FinEst Link project explores transport solutions to cater for increased freight and passenger volumes over the long term and has assessed the feasibility connecting the capital cities by railway tunnel under the Baltic sea
• The feasibility assessment is now in its final stages with focus on a next steps roadmap to secure project continuation, including design of organization and governance models for the Helsinki-Tallinn tunnel project
• The FinEst Link project needs to create the roadmap and evaluate key design options by end of April
• The objective of the report is is to help secure continuation of the FinEst Link project by creating a clear project roadmap and providing visibility on how to structure next steps based on industry best practices and experience from similar megaprojects
• The report has been co-created with the FinEst Link project team and taskforce
• The main deliverables of the report include:
– Project organization alternatives
– Key stakeholders for communications planning
– Overview on options for owners organization and financing
– Risks for mitigation planning
– Key components of the FinEst master plan
• FinEst Project overview until estimated completion
• Milestones for 2018-2020
– A best practice guide to managing megaprojects
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Background: The feasibility assessment has concluded that the project is fundamentally implementable, with economic feasibility as the key issue that needs to be solved
SOURCE: FinEstLink Feasibility Study – Final report
Technical concept
• The FinEst Link is based on a 1435 mm gauge railway tunnel with two rail tunnels and a service tunnel
• Passenger stations are in Helsinki city, Pasilaand Helsinki-Vantaa airport
• Freight terminal in close proximity of the Helsinki airport with connection to the Finnish railway network (1524mm)
• Passenger stations in Ülemiste Tallinn
• Freight terminal near the airport
• A connection for both freight and passengers to Rail Baltica
Strategic positioning
• The FinEst link forms a gateway to the wider European railway systems through Rail Baltica
• Improved connections between Helsinki and Tallinn will foster metropolitan growth through improved accessibility for people and companies
Demand growth
• The tunnel will bring substantial growth in passenger travel and some increase in freight (main shift is from ferry to train) compared to scenarios without tunnel
Planning objectives
• The FinEst Link has met all its six planning KPIs:
– Improved daily commuting with frequent connections and competitive ticket prices
– Smooth travel chains, with integration to other means of public transport
– Effective travel chains through enabling multimodal and international travel
– Environmental sustainability through energy efficiency and reduced truck traffic in cities
– Improved travel safety through lowered risk levels with high safety standards
– Economic viability through according to project financial modelling
Costs• Cost estimation 13-20 billion euros based on
benchmarks from similar projects
Economic feasibility
• Despite the high demand growth, the investment model shows low economic feasibility due to high initial investments
• Report findings suggest that the calculations do not account for wider economic impact
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SOURCE: Press research, discussions with FinEst project team
Important topics to consider early on:
Alignment with other projects: Need for more detail Understanding of land use
2008 Jan 2016 Aug 2017 Feb 2018 2018 2024
2015 Jun 2016 Nov 2017 April 2018
2025 2040-2045
Letter of intent signed by city mayors of Helsinki and Tallinn to conduct a pre-feasibility study
Approval and launch of the FinEst Link project
Estonia and Hyper-loop One signed letter of intent for co-operation on the tunnel
Final project results presented in Tallinn
Start of construction
Tunnel in operation
Pre-feasibility study for Helsinki-Tallinn link completed with estimated costs of EUR 9-13 Bn for 85km, presuming 40% public funding
Slush co-founder, Peter Vesterbackaannounced plans for a privately funded competitive tunnel from Espoo (Otaniemi) to Tallinn
Initial announcements on project results, including an alignment proposal for the route of 103km, railway track integration and traffic estimations
Conclusion of feasibility study
Start of construction
Tunnel in operation
Vesterbacka plan(budget ~15bEUR)
FinEst Link tunnel (budget 13-20bEUR)
• Helsinki Uusimaa Regional Plan
• General land use plans of the municipalities
• Groundwater studies (Viimsi and Helsinki Airport area)
• Artificial islands and its construction material logistics
• Ülemiste railway station area
• Muuga multimodal terminal
• Helsinki Airport rail
• Helsinki Airport multi-modal travel center
• Helsinki underground general plan
• Ten-T program (alignment for possible financing)
The FinEst Link project has strong political support from both involved countries, but no firm go-live decision yet – target tunnel opening is 2040-2045
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A taskforce has been set up to create an overall plan and immediate next steps going forward in order to ensure continuity
SOURCE: FinEst feasibility study; FinEst project team interviews
Feasibility studies Taskforce Next steps
• Taskforce to define next steps by creation of schedule, milestones plan and suggestion for the project set-up
• Decision in principle needed to secure continuation and to enable funding
Timing and duration
• Started in 2017 and finished in March 2018
• Started in April 2018 and will finish by beginning of May 2018
Responsibilities
• Conduct initial technical and economic feasibility of a fixed rail link between Helsinki and Tallinn
• Create milestones plan and next steps for the following two years including suggestion on project organization
Funding
• No separate funding• Work conducted in parallel
to existing national and regional budgets
• Funded by the EU’s Interreg Central Baltic Program with a budget of 1,3 mEUR
Key outcome
• The feasibility study has concluded that the fixed link is feasible, but with questions concerning the business case
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There are other projects affecting the FinEst Link, which should be taken into account in the planning phase to cater for potential cooperation opportunities in the future
1 Known as One Belt and One Road (OBOR) until 2016; 2 A continuous rail link from Tallinn (Estonia), to Warsaw (Poland), via Riga (Latvia) and Kaunas (Lithuania)
SOURCE: Press search, initiative websites, FinEst Project team
Within Finland and Estonia, there are also multiple plans in progress which need to be steered to a direction positive/neutral to FinEst Link
Globally, there are multiple other separate infrastructure projects are ongoing, with touchpoints to FinEst Link
Alignment with EU budgeting
▪ Ten-T program (alignment for possible financing)
– Financial period planned in 2021
– Enforced 2023
Arctic Corridor – Arctic Railway
▪ A global economic region as well as a transport and development corridor
▪ Missing part from the railway route between the Mediterranean to the Arctic Ocean is the gap between Rovaniemi and Kirkenes.
– Cost estimate for this Arctic Railway Project is €3 billion
– Building of the railway could start as soon as in the 2020's
Estonia
▪ Ülemiste railway station area
▪ Rail Baltica infrastructure in Harju county
Rail Baltica ▪ Project to link Finland, Estonia, Latvia, Lithuania and Poland with a European standard gauge rail line, providing passenger and freight service between the countries and improving rail connections between Central and Northern Europe2
▪ One of the priority projects of the European Union: Trans-European Transport Networks (TEN-T)
Silk Road Economic Belt1 ▪ Development strategy proposed by the Chinese government that focuses on connectivity and cooperation between
– Eurasian countries, primarily the People's Republic of China (PRC)
– The land-based Silk Road Economic Belt (SREB)
– The ocean-going Maritime Silk Road (MSR)
Finland
▪ Helsinki Airport rail
▪ Helsinki Airport multi-modal travel center
▪ Helsinki underground general plan
(Midway Alignment of) Bothnian corridor
▪ Midway Alignment of the Bothnian Corridor is an EU-project designed to expand the connections between strong, fast growing, internationally important regions that are in need of a ferry (e.g. Ostrobotnia and Westerbothnia)
▪ Co-financed by the TEN-T program
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Contents
• Executive summary
• Overview of the FinEst Link project
• Learnings from other megaprojects
• Considerations for the next project phase for FinEst Link
• The immediate next steps for FinEst Link
• Appendix
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For FinEst Link, there is a lot to learn from other similar megaprojects
Ensure correct capabilities. Project should have a clear view on required capabilities for each phase, ranging from long-term dedicated leadership, knowledgeable core team and utilization of additional experts when needed
A
Support a challenger mindset. Continuous challenger mindset to question status quo ensures continuous improvement and identification of optimization opportunities throughout the project
B
Create a clear and compelling business case. Communicate and keep it visible in the minds of stakeholders including a set-up to mitigate risks to ensure investor attractiveness
C
Utilize multiple means for communications. Transparency is key to ensuring support from the wider stakeholder community – utilize public hearings and other means for frequent communications
D
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Ensure correct capabilities are present in the project team –Either internally or sourced externally
A
LEARNINGS FROM STUTTGART 21, FEHMARN BELT, ÖRESUNDS BRO, GASUM BALTICCONNECTOR, EUROTUNNEL, RAIL BALTICA
Other megaprojects suggest that there are multiple parts of the project organization which need to be carefully thought through – already in the beginning of the project
Steering group
Core team with key capabilitiesAdditional expertise per
project phase (also externally)
Steering group should include representatives from both involved countries to ensure ability to e.g. understand cross-national decision making
Regular touchpoints are needed with steering group
Plan ahead for capabilities required, taking into account large projects utilizing same resources (e.g. engineering)
Permanent task forces should be established -People who are 100% involved in the project already in the beginning
Ensure representation from both countries - Form one team instead of separate country teams
If state involved, there should be a leader(s) with ability to push decision making forwards also on state level
Source externally knowledge on e.g. planned changes of regulations on EU level
Ensure correct capabilities are present in the project team
• Guarantee dedicated project steering. Having a clear project steering group, political support early on and people driving the project forwards in the long term is crucial to secure continuity
• Staff the core team with key capabilities. The core team should be staffed full time and for the long term, integrating parties across state borders, ensuring key capabilities over the project timeline, e.g. critical local knowledge for permitting and stakeholder management
• Ensure required additional expertise is available for each project phase. Availability of required resources at the correct time is critical for project success, and can prove to be a bottleneck if not planned for in advance
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Support a challenger mindset – Ensure identification of optimization opportunities
1 Average number of vehicles per day
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Handrails / guardrailsNo significant difference in standards between Country B and Country A
WidthCountry B's 4-lane roads have standard road widths 20m for roads with ANV1 12'-20 'and 23m for ANV1> 20'. Country A's 4-lane roads have a minimum width of 18.5m for freeways and 16.5m for a no-frills road
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No / small differences in standard
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AsphaltNo significant difference in standards between Country B and Country A
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AssemblyNo significant difference in standards between Country B and Country A
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Significant differences in standard
DrainageDue to deeper superstructure, Country B uses largely closed drainage, while Country A uses open drainage in ditch
Reinforcements and frost protectionCountry B is entitled to 100-year frost protection for 4-field and 10-year frost protection for the 2-way road. This requires a total depth of up to 2.40 m for 4-field and 1.80 m for 2-field
LightingCountry B requires lighting by road with ANV1> 6,000, while Country A requires lighting with ANV> 35,000 for 4-field
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Challenging the existing standards led to identification of large opportunities for optimizationEnsure a culture of challenging the status quo
LEARNINGS FROM NORDIC ROADS AUTHORITY
B
• Ensure understanding throughout the organization understands why it is important to challenge the status quo
• Support all individuals sharing ideas on optimization opportunities
• Create formal mechanisms to support idea generation (e.g. idea boxes, putting ideas in action,…)
• Role model the required change by ensuring project leadership positively focuses on opportunity identification
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Create a clear and compelling business case to ensure investor attractiveness LEARNINGS FROM RAIL BALTICA ,
EUROTUNNEL, NORDIC ROAD AGENCY
SOURCE: Press search: Guardian.com (2009); BBC.co.uk (2005)
FinEst Link should consider multiple alternatives to ensure a successful business case and investor interest
The business case needs to be fact based to ensure long term success for all stakeholders
Reduced financial risks
Additional upside
Strong backbone
C
• Government guarantees, e.g. passenger volume subsidies
• Long contracts
• Separate contracts, e.g. construction and operations as separate deals
• “Package” deal with e.g. developer rights
• Good PR and new capabilities
• Skilled core team
• Good management practice with experienced project manager and independent chair
• Predictable political decision making
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Utilize multiple means for communications –Create a culture of transparency LEARNINGS FROM RAIL BALTICA
NORDIC ROAD AGENCY
SOURCE: Postimees.ee; expert interviews
Not addressing all relevant stakeholder early on can lead to negative results - Public letter was signed by over 400 people to demand stop for Rail Baltica
Multiple means for communications should be utilized to address all stakeholders
D
• Facilitate political support already early on to ensure leadership for project is available also on a wider environment outside project team
• Activate business community to support project by involving them in discussions and educating them on the long term benefits
• Hold open meetings regularly, with easy access for stakeholder, ensuring transparent and real time communication, e.g.
– Meetings for parliament sections at parliament buildings
– Meetings for environmental committees
• Involve key opinion leaders to help shape the opinion of general public
• Celebrate early success openly and share with a wide group of stakeholders
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Contents
• Executive summary
• Overview of the FinEst Link project
• Learnings from other megaprojects
• Considerations for the next project phase for FinEst Link
– Secure a project team with required capabilities and set up a robust governance structure
– Put in place master planning and create a first draft of the plan to ensure a complete view of upcoming milestones at every stage of the project
– Develop a robust stakeholder management plan and process to ensure transparent communication
– Define ownership structure and financing model, including the revenue generation model (from ticket sales and possible subsidies) to attract investors
– Create a risk management process to ensure continuous risk identification and mitigation throughout the project
• The immediate next steps for FinEst Link
• Appendix
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FinEst Link is a megaproject with unique characteristics, which lead the activities for the next phase of the project
Characteristic of the FinEst Link project Description
A very long project timeline before being operational
High investments required to complete infrastructure construction
Technically demanding project in global context and no firm decisions on technical solutions yet
A complex stakeholder environment, with main parties including Finland, Estonia and the EU
To manage all of the requirements for the next phase, FinEst Link needs to take the following steps:
• Secure a project team with required capabilities and set up a robust governance structure to ensure success in the next project phase
• Put in place master planning and create a first draft of the plan to ensure a complete view of upcoming milestones at every stage of the project
• Develop a robust stakeholder management plan and process to ensure transparent communication
• Define ownership structure and financing model, including the revenue generation model (from ticket sales and possible subsidies) to attract investors
• Create a risk management process to ensure continuous risk identification and mitigation throughout the project
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• Project team, including owner’s representatives and chosen contractors need to have required capabilities to manage complexity
• Success of infrastructure projects is often put at risk by how they manage multiple stakeholders and conflicting interests
• For FinEst Link the list of stakeholders is especially long due to e.g.
– International reach of the project
– Involvement of two nations
– Involvement of EU
• Investments of this magnitude (20b EUR) and associated risks require either
– A strong business case to attract private money
– Strong public entity support (e.g. from EU TEN-T) to ensure subsidies
• Long projects are demanding in light of task and team continuity due to changes in e.g.
– Resources
– Legislation
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Contents
• Executive summary
• Overview of the FinEst Link project
• Learnings from other megaprojects
• Considerations for the next project phase for FinEst Link
– Secure a project team with required capabilities and set up a robust governance structure
– Put in place master planning and create a first draft of the plan to ensure a complete view of upcoming milestones at every stage of the project
– Develop a robust stakeholder management plan and process to ensure transparent communication
– Define ownership structure and financing model, including the revenue generation model (from ticket sales and possible subsidies) to attract investors
– Create a risk management process to ensure continuous risk identification and mitigation throughout the project
• The immediate next steps for FinEst Link
• Appendix
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On a high level, a project organization is comprised of the project owner’s team, contractors and oversight committee
SOURCE: Expert interviews; Construction Industry Institute
Further details on following pages
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Includes all external stakeholders like local community, NGOs, political functionaries, civil authorities and others
Contractor organisation
Project Owner
Project organisation
Overall oversight committee
Subcontractors’organisations
For you, this could mean the following
• Comprised of government agencies, project financers, and selected representatives such as independent consultants and experts
• Project owner organization:
– Project organization to oversee design and construction and to monitor contractor performance
– Functional departments and scope delivery streams to lead the work
• Typically under the auspices of EPC (engineering, procurement, and construction) or D&B (design and build) or other types of contracts
• Includes suppliers of materials, labor resources, or design and construction services
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Conceptual Basic designPre-feasibility Execution
Mega-projects(E.g. ~$10B)
Over the course of a megaproject, the project owner’s organization will see a substantial increase in staffing needs as the project moves from pre-feasibility towards execution
SOURCE: External benchmarks
5-25
200-250
75-100
300-450
Required key capabilities
ILLUSTRATIVE
Required throughout the project:
• Stakeholder management and communication skills to ensure a positive outlook both external and internal, with emphasis in project phases before the political decision making
• Project management skills to ensure success of complex project over a long timeline
• The organization will evolve over time and project phase
• Required capabilities change as the project develops
• The exact sizing and required capabilities depend on owner’s organization involvement vs. contracted scope
• In Scandinavian countries the tendency is to utilize more contracted capabilities in infrastructure projects, leading to lighter owner’s teams
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• Regulatory expertise to identify needs for permitting
• Basic engineering to identify technical feasibility
• Capabilities to assess feasibility of business case
• Regulatory expertise to start permitting process, including required initial assessments
• Engineering skills to detail out the required technical solution
• Regulatory expertise to conclude the permitting processes (e.g. construction license)
• Detailed engineering to finalize the required drawings and plans
• Quality assurance to confirm design is up to requirements
• Detailed engineering to ensure effective change management
• Construction capabilities to ensure on-time and on-budget delivery
• Quality assurance to guarantee required construction quality
• Site safety to guarantee safe construction environment
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Governance structures need to be put in place to ensure efficient decision making and transparency on progress NOT EXHAUSTIVE
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Key governance structure entities Main responsibilities Key success factors
Advisory board• Provide outside perspective and counsel• Provide general direction• Advise on specific topics
• Include private and public sector capabilities• Consider limiting political stakeholders to ensure
long term perspective
Steering Group
• Final decision-maker and approval entity, e.g.– Review and Approval of scope and high level design choices– Review and Approval of talent selections– Review and Approval of process (decision rights, metrics, governance)
• Bring required topics for political discussion and decision making
• External chair to ensure independent decision making and conflict resolution
• Whole steering group should have independent perspective
Project core team
• Manage all day to day work• Report to Steering Group with updates, issues, and decision making requests• Manage the master plan and ensure schedule and cost adherence• Manage risk planning and contingencies• Facilitate de-bottlenecking in workstreams• Identify interdependencies and facilitate collaboration between each
workstream
• Invest early on in full time resourcing• Cross-functional team with mix of experience
from senior positions and drive and new thinking
Function and scope leads
• Drive own work stream and ensure transparency both upwards and down into the steam
• Facilitate decision making by preparing information • Report regularly on progress and deviations
• Ensure relevant experience
External experts
• Provide specific expertise on topics as per need• Should be actively utilized e.g. for detailed engineering and design, as due
to the project nature of the work (not needed permanently)
• Be sure to utilize external advice actively, as the project organization will not have all knowledge in-house
• It is critical to align incentives correctly with external support
Project manager
• Leads the whole project on a day-to-day basis• Accountable upwards and downwards for project success
• Project manager should have previous experience from senior role in large infrastructure projects to drive extensive permitting and planning process effectively
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The project organization can be formed by scope or by function –the model should be chosen early on, and scaled up over time
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Project model Basic description Overview
Scope delivery model
Project organization model examples for consideration
A
Project manager
Scope 1 Scope 2 Scope 3
Function 2 Function 2 Function 2
Function 1 Function 1 Function 1
Function 3 Function 3 Function 3
• Separate organization is setup for each package or area
Functional matrix model
Project manager
Scope 1 Scope 2 Scope 3
Function 1
Function 2
Function 1
Function 3
B
• Specialized service groups (e.g. structural groups) are setup to do all structural work
Hybrid model
Project manager
Scope 3
Function 3
Function 2
Scope 2Scope 1
C
• Separate organization is setup for each package or area, but there is also internal functional support (e.g. project controls) that serves multiple packages/areas
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Scope delivery model: Focused delivery of clearly defined packages ILLUSTRATIVE
+ Provides focused delivery of individual packages
+ Scope managers have full control of resources required to deliver the package
– Creates “silo” approach to delivery
– Interface management problems are more difficult to resolve
Considerations
Tunnel managerArtificial islands
managerStations manager
Rolling stock manager
….
Construction Construction Construction Construction Construction
Engineering Engineering Engineering Engineering Engineering
Finance Finance Finance Finance Finance
Public relations & Communication
Public relations & Communication
Public relations & Communication
Public relations & Communication
Public relations & Communication
…. …. ….. …. ….
Legal Legal Legal Legal Legal
Project manager
Function Scope/area
1a
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Functional matrix model: Focused delivery of functional best practices arcoss project organization ILLUSTRATIVEFunction Scope/area
Project manager
Construction manager
Engineering manager
Finance manager
Public Relations & Communication
manager
Legal manager
….
TunnelArtificial islands
Stations Rolling stock ….
TunnelArtificial islands
Stations Rolling stock ….
TunnelArtificial islands
Stations Rolling stock ….
TunnelArtificial islands
Stations Rolling stock ….
TunnelArtificial islands
Stations Rolling stock ….
TunnelArtificial islands
Stations Rolling stock ….
+ Provides focused implementation of best practices at functional level
+ Improves transparency on function level
+ Interfaces are easier to manage
– Creates “silo” approach at functional level
– Scope managers do not have full control of functions required to deliver the project
Considerations
1b
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Hybrid model: Balanced approach to to interface management
ILLUSTRATIVE
Project manager
Finance manager
Public Relations & Communication
manager
Legal manager
Permitting
Construction
Engineering
Tunnel manager
Artificial islands manager
Construction
Engineering
Stations manager
Construction
Engineering
Rolling stock manager
Construction
Engineering
….
Construction
Engineering
TunnelArtificial islands
Stations Rolling stock
TunnelArtificial islands
Stations Rolling stock
TunnelArtificial islands
Stations Rolling stock
Finland Estonia
….
….
….
+ Provides balanced approach to interface management
+ Scope managers have full control of critical resources
– Scope managers share non-critical resources such as reporting
– Interface management needs to be clearly defined
Considerations
… … …
Function Scope/area
1C
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Contents
• Executive summary
• Overview of the FinEst Link project
• Learnings from other megaprojects
• Considerations for the next project phase for FinEst Link
– Secure a project team with required capabilities and set up a robust governance structure
– Put in place master planning and create a first draft of the plan to ensure a complete view of upcoming milestones at every stage of the project
– Develop a robust stakeholder management plan and process to ensure transparent communication
– Define ownership structure and financing model, including the revenue generation model (from ticket sales and possible subsidies) to attract investors
– Create a risk management process to ensure continuous risk identification and mitigation throughout the project
• The immediate next steps for FinEst Link
• Appendix
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Core beliefs on masterplan creation and management2
Core beliefs
Enable informed top management decisions
Validate timelines through independent expert estimates
Keep partial plans consistent using sync milestones
More detail is not better• High-level milestone plan sufficient in early stage of project• Plans can be detailed later on
• Make sure that partial plans of workstreams share common sync milestone with others to build a consistent master plan
• Interview several experts outside the project to validate time estimations for every workstream
• Ensure that the high-level masterplan includes all relevant/critical data elements (in particular critical path) that enable informed top management decisions
Details
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The master plan ensures key outcomes for each project phase are reached and the project can move to the next stage ILLUSTRATIVE
▪ Key outcome of the project phase
Project phase
Feasibility studies
Concepting ContractingPlanning and Permitting
Construction Testing Operating
Initial FinEst Link schedule
2018: Feasibility study concluded
2044: Operating begins
2029: Construction begins
▪ Secure project continuation
▪ Contractors for construction phase selected
▪ Tunnel and all adjacent infrastructure ready
▪ Trains operating between Helsinki and Tallinn
▪ Conceptual design in place and decision in principle reached
▪ All required permits in place to initiate construction
▪ Operating license granted
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1 Duration and horizon definitions can vary for individual projects
A good master plan is developed at increasing levels of detail1, with ability to show both the high level schedule and the highly detailed plan
At this stage of the project, L1 is the relevant level of planning – a master plan should be transparent within the whole project organization
Purpose and target audience
• High-level assessment of overall project health
• Selection of critical (path) structures to focus efforts on
• Supporting interaction with client/purchaser
Level description
L1
High-level ‘program one-pager’
• Activities divided into major work areas and milestones, e.g., “Complete EIA Assessment”, “Set up project organization”
• Activity duration of more than 10 weeks, horizon to end of project
High-level program by structure
• Individual structures represented by single activities, e.g., “Divide construction project into work packages”
• Activity duration of 2-10 weeks, horizon to end of project
L2
• Optimization of activity sequencing, development of acceleration programs
• Supporting planning discussions with subcontractors
Detailed program by activities within structures
• Activities typically handled by a single work crew, e.g., “Construct tunnel area 1 columns from foundation to first floor”
• Activity duration of 5 days-2 weeks, horizon to next milestone/development phase
L3
• Daily assessment of subcontractor performance and productivity
• Supporting daily check-ins with subcontractors to enable continuous improvement
Highly detailed program for day-to-day tracking
• Granular activities allowing daily progress tracking; e.g., “Prepare formwork for tunnel area 1, between grid lines A-E”
• Activity duration of 1-5 days, horizon of 1 week
L4
2
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2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045
Construction plan
Timing tbd
Activities required for construction permit
2021:TEN-T planned financial period
2023:TEN-T
Financials enforced
Key milestones
Feasibility study - Feasibility assessment- Planning for permitting and concepting
Contracting- EPC(M)- Suppliers for contract packages
Concepting- Understanding of land use plans- Clarification of required permit documents- Further socio-economical investigations- Plan for construction of artificial islands- Logistics for rock material and location for loading port- Project org set up- Detailing project ownership and financing models- Co-working with other projects
Planning and permitting- EIA- General plan - Master plan- Water permitting- Rail plan- Zoning plan
2044: Operations begin
Activity
Operations
2029:Construction begins
- Construction plan
2018: Feasibility study
concluded
Construction & testing
FinEst Link: High level project master plan ensures a complete view of upcoming milestones at every stage of the project until estimated completion
PRELIMINARY
SOURCE: FinEst project team interviews; Expert interviews
1 Strategic Environmental Assessment
Levers to shorten the timeline:
Increase risk taking:
▪ By frontloading work and parallel activities early on
▪ By utilizing new, emerging technologies
Clear financing decision from governments and/or EU
Swift political decision making
1
2
3Preliminary geological studies
National special planEnvironmental studiesSEA1
EIAMaster planGeneral plan
Water permittingRail planZoning plan
Potential litigation
Additional studiesEnvironmental permitConstruction permit
EST:
FIN:
2
31
Contents
• Executive summary
• Overview of the FinEst Link project
• Learnings from other megaprojects
• Considerations for the next project phase for FinEst Link
– Secure a project team with required capabilities and set up a robust governance structure
– Put in place master planning and create a first draft of the plan to ensure a complete view of upcoming milestones at every stage of the project
– Develop a robust stakeholder management plan and process to ensure transparent communication
– Define ownership structure and financing model, including the revenue generation model (from ticket sales and possible subsidies) to attract investors
– Create a risk management process to ensure continuous risk identification and mitigation throughout the project
• The immediate next steps for FinEst Link
• Appendix
1
2
3
5
4
32
Core beliefs for stakeholder management
▪ Your stakeholders make you better
– Managing stakeholders requires projects to develop their thinking and assess alternatives
– Good stakeholder management can at best result in strong external support leading to attracting top talent and financing
▪ Direct stakeholders are important, but do not overlook:
– Indirect influencers: your stakeholder’s bosses
– Anyone who gains/loses if you gain/lose (e.g. other departments, providers)
▪ The individuals matter, not the entity:
– Within each stakeholder organization (e.g. the regulator, the ministry) identify who the top 3-4 most influential people are
– For each individual understand thoroughly what matters to them (their objectives, incentives, background)
3
33
Stakeholder prioritization is crucial to focus and tailor your communication efforts
3 Develop communication plan
• Specify messages, communication action, timing and feedback mechanism for all relevant stakeholders
2 Analyze where stakeholders stand
• Assess what impact the change will have on them and where they stand in terms of change readiness
1 Identify and prioritize stakeholders
• List all relevant individuals or groups that are important for the success of your program
• Determine where each stands in terms of overall importance to project success and perceived attitude toward project
• Place them on the matrix appropriately for prioritization
Importance of stakeholder for project success
High
Medium
Low
Priority 4
Generate awareness by keeping continu-ously informed, but do not be distracted by resistance
Prioritization of stakeholders (per project or work-stream)
Negative Neutral Positive
Perceived attitude towards project
Priority 2
Hold highly tailored individual meetings to build awareness
Priority 1
Integrate into project; win over as promoters
Priority 3
Keep informed and win over
3
34
Individual stakeholder action plans to be developed for each key stakeholder
Event(s)/action(s) Objective MessengerDate MediumMessages
Summary of issues Must follow revised budgeting and performance measurement process, which provides for central rather than business-unit-driven target setting
Current stakeholder position
Medium influence/opponent
Stakeholder BU finance leaders
SANITIZED CLIENT EXAMPLE
Person leading management of stakeholder
CFO
Required stake-holder position
Medium influence/neutral
Monitoring approach
▪ Obtain feedback from BU finance leaders on monthly CFO call
• Review of data coming from each BU finance team throughout budgeting cycle
• Conduct annual "deep dives" in each team
CFO briefingJuly 15th CFO supported by controller
Workshop• Ensure that business unit leaders receive a single, consistent message about the initiative and that they understand the commitment of the CFO
• Ensure that participants are aware of how they should move forward
• Outline “from-to” changes in behavior
• Review timeline for revised budgeting cycle including key inputs and outputs at each stage in the process
Business unit leader briefings of business unit finance leaders
July 9th Business unit leader responsible for each function
One-on-one, face-to-face discussion
• Lay groundwork for successful
• implementation of revised budgeting
• process by ensuring that business unit
• finance leaders:
• Understand the rationale for the changes (context and business drivers)
• Understand the timing of those changes
• Know they will help to determine exactly how the approach will operate
• Are aware that support will be available to help them throughout the transition
• Leadership team has agreed to move toward a more integrated operating approach for the business
• Finance is a critical component in that change
• Reporting relationship will shift from being with the BU leader to primarily being with finance (CFO)
• Do not review this with respective teams until they have heard the details of the approach from the CFO
• Process will be prototyped during this fiscal year
3
35
FinEst Link: Key stakeholders identified for communications planning
See excel for further information
Importance for project successCountry
Contractors Global EPC(M), Construction, engineering, etc.
StakeholderKey contacts
Importance for project success
Perceived attitudeCategory
Key contacts
Perceived attitude Category Country Stakeholder
External expert Global
Financing partners Global
Infrastructure owners Global Future train operator
Landlords Finland Land owners
Landlords Estonia Land owners
Logistics infrastructure Estonia Port of Tallinn
Logistics infrastructure Estonia Port of Muuga
Logistics infrastructure Estonia Tallinn Airport
Logistics infrastructure Finland Helsinki-Vantaa Airport
Logistics operators Global Viking Line
Logistics operators Global Tallink
Logistics operators Global Deutsche Bahn
Media Finland Journalists
Media Estonia Journalists
Media Finland Blogs
Media Estonia Blogs
NGOs Finland Environmentalist groups
NGOs Finland ProRautatie
NGOs Global BaltiRail
NGOs Estonia Environmentalist groups
Operator Estonia Estonian Railways
Other projects Global Rail Baltica
Other projects Global Arctic Corridor
Other projects Estonia Ulemiste railway station area
Other projects Estonia Muuga multimodal terminal / new terminal
Other projects Finland Helsinki Airport Rail (Lentorata)
Other projects Finland Helsinki Airport Multimodal Travel Center
Other projects Finland Helsinki station (underground general plan - city planning department)
Permitting authorities Finland ELY-keskus (TBD, to be merged with region)
Permitting authorities Finland AVI (tbd, will be disappearing - part of LUOVA authority)
Permitting authorities Finland Trafi
Permitting authorities Finland Security authorities
Permitting authorities Estonia Technical Regulatory Authority
Permitting authorities Estonia Estonian Road administration
Permitting authorities Estonia Geological institute
Permitting authorities Finland Geological institute
Political - affected Global Arctic Corridor
Political - affected Finland Merenkurkku (Vaasa - Umeå)
Political - affected Finland Häme
TO BE FILLED LATER
Political - affected Finland Lapland
Political - affected Estonia Tartu
Political - affected Global Latvia
Political - affected Finland Pirkanmaa region
Political - involved Finland Finnish government
Political - involved Estonia Estonian government
Political - involved Finland Uusimaa region
Political - involved Estonia Harju county
Political - involved Finland Helsinki
Political - involved Estonia Tallinna
Political - involved Finland Vantaa
Political - involved Finland Nurmijärvi
Political - involved Finland Tuusula
Political - involved Finland Adjacent municipalities
Political - involved Estonia Adjacent municipalities
Political - involved EU EU
Public Finland General public
Public Estonia General public
Public Finland Key opinion leaders
Public Estonia Key opinion leaders
Security authorities Finland City of Helsinki Rescue Department (Pelastuslaitos)
Security authorities Finland Helsinki Police Department
Security authorities Finland Customs of Finland
Security authorities Finland Finnish Border Control
Security authorities Estonia City of Tallinn Rescue Department
Security authorities Estonia Tallinn Police Department
Security authorities Estonia Customs of Estonia
Security authorities Estonia Estonian Border Control
Security authorities Finland Finnish Army
Security authorities Finland Finnish Ministry of Defence
Security authorities Estonia Estonian Army
Security authorities Estonia Estonian Ministry of Defence
Wider business community Finland Businesses affected by project (e.g. possible customers)
Wider business community Finland Business competing with project (e.g. other logistics companies, ferry companies)
Wider business community Estonia Businesses affected by project (e.g. possible customers)
Wider business community Estonia Business competing with project (e.g. other logistics companies, ferry companies)
Wider business community Finland Union of Logistics companies
Wider business community Estonia Union of Logistics companies
Wider business community Finland Chamber of Commerce
Wider business community Estonia Chamber of Commerce
TO BE FILLED LATER
3
36
Contents
• Executive summary
• Overview of the FinEst Link project
• Learnings from other megaprojects
• Considerations for the next project phase for FinEst Link
– Secure a project team with required capabilities and set up a robust governance structure
– Put in place master planning and create a first draft of the plan to ensure a complete view of upcoming milestones at every stage of the project
– Develop a robust stakeholder management plan and process to ensure transparent communication
– Define ownership structure and financing model, including the revenue generation model (from ticket sales and possible subsidies) to attract investors
– Create a risk management process to ensure continuous risk identification and mitigation throughout the project
• The immediate next steps for FinEst Link
• Appendix
1
2
3
5
4
37
For FinEst it is critical to create an ownership structure that can secure project financing and continuity – considerations also include sources of revenue when the trains become operational
Sources of financing
Bonds
Loans
Equity
Grants
Investment required to build …
Sources of revenue
Revenue sources that pay for …
Taxes
Tolls
Fares
Fees
Assets
Ownership structure
PublicPublic-Private Partnership
Private
Organization to own and manage…
4
38
Financing and sources or revenue decisions are influenced by how you define ownership – As owners choose between public and private ownership, they face trade-offs along the 5 dimensions
Dimensions Questions to address when considering ownership alternatives
PPP
Publicsector
Private sector
Basic ownership alternatives
Social equity
• Does a private sector investor require a return over a shorter time frame than the asset’s useful life?
• How does this social inequity affect current users and the cost they incur to use the asset?
Risk transfer
• Who bears the ultimate risk of loss?
• Who bears various risks (e.g., weather risk, labor strike risk, change of technology risk)?
• What is the cost of transferring those risks? Who can bear the risk most efficiently?
Freed-up capital
• Does the government want/need to monetize an existing asset in order to divert funds to other public uses?
• How do legal and tax concerns affect where the private sector is willing to invest and free up funds for the public sector?
Private sector skills
• Does the public sector have inherent constraints that cause it to be less efficient than the private sector (e.g., labor force collective agreements, procurement processes)?
• Does the private sector bring additional intellectual capital to the technology and or process?
• What efficiency gains could a private player bring (e.g., accelerated timing, reduced cost, construction and materials procurement)?
Ownership and control
• What are legal, regulatory, and political constraints to the transfer of ownership to the private sector?
• Who controls the revenue stream for the asset?
• Who controls the scope of the asset (e.g., size)?
• Who controls policy and regulation for usage of the asset?
• Public sector ownership is typically justified for assets for which social equity is important, free public services as offered, or which are considered too strategic to privatize
• PPPs find a way to balance these trade-offs if the partnership is constructed appropriately
• Additionally, there are things the public and private sector can do to minimize trade-offs
• Private sector ownership is best suited for assets with clear ROE and a strong business case
4
39
For FinEst the considerations along five dimensions imply that some form of private involvement is an option to be explored further
Dimensions Questions to address when considering ownership alternatives Key considerations for FinEst
Social equity
• Does a private sector investor require a return over a shorter time frame than the asset’s useful life?
• How does this social inequity affect current users and the cost they incur to use the asset?
• From a public sector perspective, additional adjacent returns are a part of the equation (e.g. mobility and labor market expansion)
• Private sector expectations on return directly linked to project
Risk transfer
• Who bears the ultimate risk of loss?
• Who bears various risks (e.g., weather risk, labor strike risk, change of technology risk)?
• What is the cost of transferring those risks? Who can bear the risk most efficiently?
• The risk transfer needs to be evaluated for both the construction phase and the operational phase separately
Private sector skills
• Does the public sector have inherent constraints that cause it to be less efficient than the private sector (e.g., labor force collective agreements, procurement processes)?
• Does the private sector bring additional intellectual capital to the technology and or process?
• What efficiency gains could a private player bring (e.g., accelerated timing, reduced cost, construction and materials procurement)?
• Private financing can potentially speed up decision making as tax payer money is not required – no need to allocate state budget to project
• Managing the megaproject requires extensive experience, which will need to be acquired from the private sector
Ownership and control
• What are legal, regulatory, and political constraints to the transfer of ownership to the private sector?
• Who controls the revenue stream for the asset?
• Who controls the scope of the asset (e.g., size)?
• Who controls policy and regulation for usage of the asset?
• Private involvement feasible considering current plans to open the rail transport operations to private competition
Freed-up capital
• Does the government want/need to monetize an existing asset in order to divert funds to other public uses?
• How do legal and tax concerns affect where the private sector is willing to invest and free up funds for the public sector?
• Government capital allocation plans needs further assessment
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40
Public-Private Partnerships provide alternatives potentially suited for FinEst Link context
Alternatives to private investor involvement
Design-Build (DB)
Management contract and O&M
Lease/Purchase
Joint Venture
Tax-Exempt Lease
Build-Operate (BO)
Developer Finance
Concession
Main features Considerations for FinEst Link
• The public sector owns and finances the construction of new assets. The private sector designs and builds the assets to meet certain agreed outputs. The documentation for a DB is typically simpler than a BOT or Concession as there are no financing documents and will typically consist of a turnkey construction contract plus an operating contract in some cases or a section added to the turnkey contract covering operations.
• Increased risk transfer provides greater incentive for private sector contractor to adopt a whole life costing approach to design, Greater potential for accelerated construction program
• The awarding authority engages the contractor to manage a range of activities for a relatively short time period (2 to 5 years). Management contracts tend to be task specific and input rather than output focused. Operation and maintenance agreements may have more outputs or performance requirements
• Can be implemented in a short time and significant private investment possible under longer term O&M agreements
• Management contracts, almost all risks are borne by the public sector
• A lease/purchase is an installment-purchase contract. Under this model, the private sector finances and builds a new facility, which it then leases to a public agency. The public agency makes scheduled lease payments to the private party and accrues equity in the facility with each payment
• At the end of the lease term, the public agency owns the facility or purchases it at the cost of any remaining unpaid balance in the lease.
• Private sector takes full construction risk while ownership is public (only leasehold with investor)
• Under a joint venture, the public and private sector partners can either form a new company or assume joint ownership of an existing company through a sale of shares to one or several private investors
• The joint venture structure is often accompanied by additional contracts (concessions or performance agreements) that specify the expectations of the company
• Under a joint venture, all partners have invested in the company and have an interest in the success of the company and incentives for efficiency
• A public partner finances capital assets or facilities by borrowing funds from a private investor or financial institution. The private partner generally acquires title to the asset, but then transfers it to the public partner either at the beginning or end of the lease term. The portion of the lease payment used to pay interest on the capital investment is tax exempt
• Tax savings and reduced cost depending on tax model
• Typically used to develop a discrete asset rather than a whole network and is generally entirely new or greenfield in nature (although refurbishment may be involved). In a BO Project the project company or operator generally obtains its revenues through a fee charged to the utility/ government rather than tariffs charged to consumers.
• Key driver is the transfer of operating risk in addition to design and construction risk to the private player
• Commits public sector to long term demand risk
• The private party finances the construction or expansion of a public facility in exchange for the right to build residential housing, commercial stores, and/or industrial facilities at the site.
• The private developer contributes capital and may operate the facility under the oversight of the government. The developer gains the right to use the facility and may receive future income from user fees
• Could be interesting as additional upside through e.g. real estate for investors
• Gives a concessionaire the long term right to use all utility assets conferred on the concessionaire, including responsibility for operations and some investment. Asset ownership remains with the authority and the authority is typically responsible for replacement of larger assets. Assets revert to the authority at the end of the concession period, including assets purchased by the concessionaire
• Private sector bears a significant share of the risks • Highly complex to implement and administer• Eurotunnel: Increase in construction costs and below plan
traffic almost led to insolvency of project company
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41
In order to attract private investors early on as financers, it is critical to think of alternatives for revenue generation once the train service becomes operational
Framework to identify options on revenue generation
Source of payment
Users only(indirectly)
Users only (directly)
Fixed
Type of payment
Variable
Everybody
A variable (train user based) subsidy similar to “shadow tolls”
Fixed subsidy, that is not dependant on passenger or freight volumes
Monthly subscription for train tickets (e.g. 1-month card)
Individual train tickets purchased by freight or passenger customers
Centralized subscription model managed by a public entity, e.g. that works on multiple different means of public transport (similar to vignette system on roads)
Centralized single ticket model managed by a public entity, e.g. that works on multiple different means of public transport (e.g. Strippenkaart in the Netherlands)
Additionally, funds can be compensated through separate structures, such as awarding development rights, e.g. commercial or residential real estate
4
42
Financing and ownership structures need to be considered for three different project stages – private involvement depends on availability of alternatives to fund investments
Project phaseConceptingPlanningPermitting
Construction Operations
Demand riskCost risk RevenuesCost
Cost/revenue description
▪ Concepting, planning and permitting costs to reach construction permits
▪ Costs related to construction of tunnel and technical solution for train operations
▪ Revenues from passengers▪ Cost for operations and sustaining CAPEX
Example risks associated to costs and revenues
▪ Costs exceed budget due to complications in permitting in two countries
▪ Cost exceed budget due to litigation
▪ Costs exceed budget due to technical difficulties resulting in prolonged schedule
▪ Some risks are purely execution-related and more predictable, while others include unknowns related to local micro-conditions
▪ Revenues are hit by lower than expected demand▪ Revenues are hit by trains not running due to technical
issues▪ Costs increase due to technical issues
Cost & revenue profile
Risk ownership considerations
▪ Typically a public sector entity owns the risk and provides financing due to long time horizon to payoff– Especially permit process often financed by public
sector (e.g. EU TEN-T and states) due to long time horizon to pay off
– Transfer of execution risk to the private sector possible through procurement structuring
▪ However, bringing in private sector funding creates long term commitment
▪ Predictable execution-related risks can typically be transferred to the private sector through LSTK-contracts for selected work packages
▪ Public sector is often the best owner for risks including significant (e.g. geological or new technology-related) unknowns
▪ Demand risk as the primary risk– Tunnel operation would be a competitor to other
means of transport between Finland and Estonia– No inherent reason necessitating public
ownership of the risk, typically demand risk owned by a private operator
▪ In case states see the need for a strategic guarantee for tunnel operations or positive externalities, potential public sector subsidies can be considered
ILLUSTRATIVE
4
▪ Several combinations of public and private financing possible▪ Effective use of private financing at reasonable cost requires 1) mitigation of risks related to unknowns such as geology, 2)
mitigation of pay-off risk related to demand for tunnel services and 3) mitigation of the cash-flow delay (can be 20+ years)▪ Potential mechanisms for facilitating private financing include
– Public guarantees incl. potential subsidies to mitigate demand (revenue) risk– Public guarantees for debt taken by the construction company– Tying parts of the pay-off to development rights to adjacent projects such as real estate (commercial or residential)– Tax benefits (e.g. tax-exempt lease financing models)
▪ Operations typically funded directly from their cash flow
Financing considerations
43
Contents
• Executive summary
• Overview of the FinEst Link project
• Learnings from other megaprojects
• Considerations for the next project phase for FinEst Link
– Secure a project team with required capabilities and set up a robust governance structure
– Put in place master planning and create a first draft of the plan to ensure a complete view of upcoming milestones at every stage of the project
– Develop a robust stakeholder management plan and process to ensure transparent communication
– Define ownership structure and financing model, including the revenue generation model (from ticket sales and possible subsidies) to attract investors
– Create a risk management process to ensure continuous risk identification and mitigation throughout the project
• The immediate next steps for FinEst Link
• Appendix
1
2
3
5
4
44
Core beliefs on risk management
Understand root-causes – always use “5 whys” when an event occurs
Manage the risks, not just monitor them – most companies have risk registers, often with proper quantification of impact; be proactive managing the risks, don’t rely on the contractor / supplier
Establish accountability –risk management requires daily activities, which should be assigned to each risk owner, tracked (also software-assisted) and discussed
Put your resources behind top risks – don’t be afraid to invest in preventing, mitigating or designing management strategies for 3-5 risks that have biggest impact on project targets
Bring the sceptics – when risk identification is performed by a small group of project-related people, the list will be narrow and obvious; invite challengers and “out of the box” thinkers to risk identification sessions
Push for detail – a generically defined risk (e.g., “Engineering delays”) that does not allow for formulation of practical action plan is not useful
It’s not just about mitigation – Good risk management also means designing sound risk contingencies (Plan A, Plan B) – not all risks can be prevented, but most can be dealt with efficiently if project teams are prepared
5
45
FinEst Link should use a holistic framework to capture key project risks and uncertainties, ensuring ownership within the project organization
E
P
O
echnical
xecution
olitical
rganizational
arketM
Framework for risk categories
Execution
Technical
Market
Political
Organizational
Ownership often unclear…
Ownership usually clear
• Multiple permitting and stakeholder management efforts introduce several schedule risks
• Interface management across workstreams
• Integrated assessment of labor availability
• Complex or new supply chain
• Establishing a learning organization
• Ensuring right size and skills along different phases of project development
…leading to project integration challenges
Ownership of several key risks within large-scale project organizations often unclear
Examples of risks
• Recovery efficiency • New technology• Operability, integrity, reliability
• Equipment costs and delivery lead time• Construction costs and time• Infrastructure costs• Operating costs
• Commodity pricing• Financial market risks• Contracting• Competitive reaction
• Environmental impact• Stakeholders (NGOs, community, etc.)• Reputation risks• Taxation and royalties• Permitting
• Labor availability and productivity• Processes, procedures and systems• Learning and safety• Leadership
EXAMPLE
5
T
46
Using the standardized criteria, risks should be plotted onto a risk matrix to prioritize and to help focus mitigation efforts ILLUSTRATIVE
Like
liho
od
5
4
3
2
1
Impact
1 2 3 4 5
1
2
7
4
53
21
1317
1912
14 1516
11 9
20
8
23
6
22
1810
Very lowpriority
Highpriority
• Manage at project level
• Develop detailed mitigation plan with weekly actions, resource requirements, success metrics and progress reporting plan
Mediumpriority
• Manage within area or function
• Develop detailed mitigation plan with weekly actions, resource requirements and success metrics
Lowpriority
• Manage at system/function level for continuous improvement
• Develop high-level mitigation strategy with resource requirements
Very high priority
• Manage at project level
• Develop detailed mitigation plan with daily actions and expected outcomes, resource requirements, success metrics and progress reporting plan
• Monitor for change
Mitigation rigor must be tailored to prioritization levels
5
47
Control
• Ability to select the mitigation actions to be reviewed
by score of the risks and status of the mitigation
• Risk dashboard automatically updated with data from
the register
Mitigation Actions
• Actions required
by each individual
risk under a
certain group
Status
• Current status of each action
(e.g., not started, behind
schedule, on schedule, and
ahead of schedule)
A risk dashboard allows for effective tracking of risk mitigations
Risk group
• Risk groups combine related
risks to allow for clear owner
assignment and effective
mitigation tracking
Description of Risk Item
• Specific risks under each grouping will be
the base for:
• Likelihood and impact evaluation
• Mitigation action development and tracking
Comments and completion date
• Comments explaining the
status or required actions
• Date expected of mitigation
completion
5
48
Even when risk planning is on a satisfactory level, some risks will most likely still materialize – reliable contingency planning ensures absorption capability
ILLUSTRATIVE
1. Trigger condition
• Schedule forecast for next 3 months indicates more than 1 week of delay
• KPI:– Actual schedule
2. Plan
• Cover expected delay by increasing working shifts from 2 to 3
• KPI:– Revised schedule with
contingency implemented
3. Team 4. Steps
1. Start alignment internally and worker representatives for staffing additional shift2. Staff shifts with experienced regular workers and external temp workers and start training of external temp workers3. Organize site logistics to accommodate additional shift
• Lead: Site Manager• Involved:
– HR responsible for construction
– Shift leaders for production– Site operators
Defined objective align team members
Rough steps for implemen-tation help to structure the effort
Clear conditions defined to activate contingency plan
Defined team with leader
Contingency plans need to be prepared on the basis of the risk assessments with clear understanding of how to react in case trigger conditions are met –and KPIs to understand the effect
Contingency / risk management
• Projects such as new tracks, tunneling and new signal system installation are high volume, medium to low complexity but have high risk of time and schedule overruns
• Analysis shows that up to 20% of the budget should be allocated for the contingency and it is mostly spent during execution
• Project contingencies are typically calculated without detailed assessment and not less monitored during execution
• As an example, Fehmarn Belt project has budgeted 1bn EUR as contingency with a 7bn EUR overall budget
5
49
FinEst needs to start preparing and maintaining a risk registry throughout the project
Risk categories Examples of mitigation optionsUnderlying reason
Key risks for the FinEst program in concepting phase
Technical
• Utilizing proven technology (conventional electric trains)
• Keeping technological options open for as long as possible to allow for new technology to be developed further
• Tunnel excavation and train technology has not been chosen in feasibility phase– There is a clear interest in utilizing
latest innovation in the FinEst project (such as Maglev and Hyperloop)
• Technology will not work as planned in the later stages
• The required costs are much higher than anticipated
• Tunnel excavation technology
Execution
• Detailing technical studies to under-stand composition of rock under the sea
• Detailing tunnel engineering to understand real project execution plans
• The executional challenge is building a 103 km tunnel under the seabed
• The feasibility study cost estimate is based on extrapolation of other megaprojects
• Construction costs exceed estimation
• Construction time exceeds estimation
Market
• Subsidies are a way to reduce pressure on financial performance for the project
• The wider economic impact of the FinEstLink has been estimated as a part of the feasibility study
• The reliability is debatable and could still cause issues to the financial feasibility of the project ( as was the case in Eurotunnel)
• Markets will not develop as projected
Political
• Efficient stakeholder management• Full privatization of the project would
reduce debate by removing public financing from the political agenda
• The FinEst Link project is currently enjoying strong support from both governments
• Previous experience shows, that political support can change during the planning and permitting phases (as was the case in Stuttgart 21)
• Political support reduces over time
• Brexit and impact on TEN-T
Organi-zational
• Creating mechanisms to attract and retain top talent in the project
• Contracting strategy
• The project success is dependent on finding right capabilities for each project phase, which in case not found would put the project timeline in trouble
• Inability to find capable key resources
• Organizational set-up slow and inefficient
5
50
Contents
• Executive summary
• Overview of the FinEst Link project
• Learnings from other megaprojects
• Considerations for the next project phase for FinEst Link
• The immediate next steps for FinEst Link
• Appendix
51
2018 2019 2020
Feasibility studies and planning for permitting/concepting
• Understanding of land use
• Additional planning activities
• Further investigations
Where we are
Concepting
• Project set up
• Financing
• Ownership model
• Decision-in-principle
• Technological investigations
• Stakeholder management
• Alignment with other infra-structure projects
• Contracting strategy
Activity
Planning and permitting
• EIA
• Master plan
• General plan
• Preliminary environmental studies
The initial timeline for 2018-2020 shows that considerable effort is needed already in 2018 to be able to start planning and permitting in 2019
National special planEnvironmental studiesSEA1Preliminary geological studies
EIAMaster planGeneral plan
EST:
FIN:
• Prerequisites for this lan to realize:– Firm politwith
concepting – Clear financing secured
for concepting phase, estimated at 1m Eur per year per country, with additional costs for e.g. environmental studies▫ Financing channels
include states, municipalities and EU
– Full time core team to lead concepting phase consisting of about 5-10 resources, with external expertise utilized on need-to basis
– ical decision to go-ahead
1 Strategic Environmental Assessment
52
To ensure successful launch of the concepting phase, FinEst Link should invest in a full time core team and put in place the initial governance structure
ILLUSTRATIVE
Key governance components to be put in place now to drive the effort forwards
Advisory board
Steering group
Project core team
Project manager
To facilitate the governance structure, core team needs to implement:▪ Early stage KPIs, incl. budget adherence, schedule adherence, communications plan adherence, issues tracker, risk registry completeness▪ Master plan▪ Decision templates▪ Weekly meeting cadence
• Ensure senior and independent knowledge is available from the start to provide perspective on permitting and political decision making
• Select external chair with no governmental ties to ensure independency
• Dedicated resource to drive day-to-day work on full time basis
• 100% dedicated resources• A team of about 5-10 persons to initiate– Political decision making to achieve decision in
principle– Detailing of the project costs– Projecting and procurement discussions– Permitting process– Financing options – Communications and stakeholder management– Project structuring over time
Selected considerations for FinEst
• Some taskforce members could be potential steering group members to ensure continuity
• Keep political involvement limited, consider ministry and municipality participation
• Ensure balanced representation from Finland and Estonia• Team should possess following capabilities: Project management, environmental
assessment, engineering, procurement, financing, legal, communications• Look for profiles who are willing to support the project over long term (e.g. more
than three years to secure continuity)• Utilize experts early on to ensure progress and right level of expertise for
diverse topics• Invest early on in transparent communications and detailing the current budget
by e.g. successive calculation as used by Swedish traffic authority
• Senior involvement creates trust among stakeholders• Consider mix of independent advisors and governmental knowledge
• Experience from early stage project leadership• Neutral profile to handle bi-national project, e.g. consider resourcing from third
country (e.g. Sweden)• Manager can be changed as project evolves, e.g. to construction phase so ensure
right fit for now
53
Contents
• Executive summary
• Overview of the FinEst Link project
• Learnings from other megaprojects
• Considerations for the next project phase for FinEst Link
• The immediate next steps for FinEst Link
• Appendix
54
Fehmarn Belt – A megaproject delayed due e.g. to a complex cross-border permitting process
SOURCE: Femern.com, press research
Key details
Organization
Cost and financing
Status / Outcome
Description
Femern A/SManaging Director
German Plan Approval Division
Femern A/S in Germany –External relations and commus
Technical DivisionTechnical
Finance Division
Danish Plan Approval Division
Timeline
1992-1999 Feasibility studies
2008 State Treaty on establishment of fixed link
2018 Expected approval from German authorities
2015 Operating and construction licence from Danish authorities
Feasibility studies (16 years)
Concepting (6 years)
Planning& Permitting(~5y +)
Contracting (~3 years)
Construction and testing (~10 years)
Opera-tion
2004 Joint declaration (DK, GER) to continue work towards realisation of Femarn belt
2007-2013 EU commission allocated DKK 1.5 billion to support necessary studies and preparations
2028
Current expectation for completion
2016 Conditional contracts for civil works contracts signed, pending German approvals
2018
Expectation date for completion in 2007
TIMELINE PHASES AND TIMING INDICATIVE
Key learnings• Complexity of cross-border permitting processes should not be underestimated• Essential to have a core team representing both sides across state borders to ensure
– Local trust– Process knowledge
• Currently estimated cost ~7 bEUR, including a contingency reserve of ~1 bEUR
• Cost estimates from 2009 (~5 bEUR) have been exceeded• Project costs fully financed by Danish government-
guaranteed loans (repaid through user charges)
• At a length of 18 km, the Fehmarn Belt fixed link will be the world’s longest road and rail tunnel– Proposed to connect the Danish island of Lolland
with the German island of Fehmarn (cross over the Fehmarn Belt in the Baltic Sea – 18 km wide)
• Femern A/S and A/S Femern Landanlaeg, 100% owned by the Danish state, are respectively authorized to build and operate the fixed link and associated landworks in Denmark
• Plan approval split per country in project organization
• Project delayed due to unforeseeably complex cross-border permitting process – Permits in Denmark approved, German permits
estimated to be approved during 2018– Full launch of construction pending German approval– Current delay from original estimation for
completion expected to reach 10 years
55
Öresunds bro – A joint venture with Sweden and Denmark to build an effective link in between, resulting in cost overruns due to incorrect estimations
SOURCE: oresundsbron.com
1 To start construction in 1993 and finish in 2000
Organi-zation
Status / Outcome
Cost and financing
TIMELINE PHASES AND TIMING INDICATIVE
Description
Chief executive officer
PropertyOperations and service
Marketing and sales
Finance and support
Treasury
• Project set up organized by function
• Construction contract split in three: Bridge (Sundlinkcontractors), Tunnel (ÖresundTunnel contractors), Artificial islands (Öresund Marine Joint Venture)
• The Øresund Bridge is a bridge, a tunnel and the island Peberholm, resulting in an effective link between Denmark and Sweden
• Øresunds bron is 100% privately financed through loans and bond issues in the domestic as well as the international capital markets (plan to repay in 30 years through toll collection and ticket combos), with additional EU funds
• The financing of Øresundsbro Konsortiet is jointly guaranteed by the Kingdom of Denmark and the Kingdom of Sweden
• Öresundsbro Konsortiet’s owned by A/S Öresund and SWEDAD AB– A/S Öresund owned Sund&Baelt Holding A/S, owned by
the Danish state– SWEDAD AB owned by the Swedish state
• Construction finished three months ahead of schedule, but ~40% over initial budget– Budget overruns due to connecting infrastructure on both
Danish (substantially higher than estimates) and Swedish sides, and maritime safety efforts
Key details
Key learnings
• Representation of both states (Sweden and Denmark) in project ownership and leadership mitigates inefficient collaboration, ensuring local trust and process knowledge available and easily attained when needed
• State guarantees make project more attractive to private investors
• Functional set up of the project organization reduced silos
• Budget overruns resulting from incorrect initial estimates – important to focus on early in the project
1973 Swedish-Danish governments agree to build fixed link
1991 Binding agree-mentbetween governments11
1995 Construction begins
1990 Negotiations on funding structure
1999 First car drives through
tunnel
1992 Consortium formed, application for planning permission
1994 Redesign approved by Swedish government
2000 Bridge open
Feasibility studies (~17 years)
Concepting (~2 years)
Planning& Permitting (~2 years)
Contracting (~1 year)
Construction and testing (~10 years)
Opera-tion
Timeline
56
Eurotunnel – A private consortium consisting of French and British companies finance, build and operate the train service but struggle with profitability issues
SOURCE: Press search
Key learnings
• Ensure financial projections take into consideration market reactions (here ferries improved business model and retained market share) and up and coming new technologies (e.g. budget airlines)
• The organizational structure with separate British and French teams caused communication gaps between teams tunneling from different sides
Feasibility studies Concepting Planning& Permitting)
Contrac-ting
Construction and testing
Opera-tion
• The project was completed 80% over budget and 1 year late
• Eurostar had initially projected 21 million passengers, when actual figure was ~1/3 of that
• Even though the Eurotunnel has been considered a failure in terms of ROI and debt repayment, it has recently undergone revenue and profit increases
Status / Outcome
• The Channel Tunnel is one of the biggest engineering projects ever undertaken in the Europe, linking the UK and France via rail
Description
Cost and financing
• Initial budget Eur 4.7 B -The project was privately funded with bank loans and equity payments
Organization
• The construction consortium consisted of 10 contractors called TransManche Link or TML for short and was divided between UK and French responsibilities
1979 Initial studies for railway schemes across the Channel
1985 Submission of proposal that meets requirements of French and British Gov’ts
1988 Start of construction: TransmancheLink (TML) is the Contractor responsible for the design, construction, and commissioning of the project.
1986 Building and operating concession awarded to Eurotunnel group
1994 Start of operation
TIMELINE PHASES AND TIMING INDICATIVE
Key details Timeline (current estimate)
57
Gasum BalticConnector – A natural gas pipeline between Finland and Estonia highlighting the difference in permitting processes
Key learnings• The BalticConnector project highlights the differences in permitting
processes between Finland and Estonia – requiring local knowledge from both countries in the project organization
Organization
▪ No deviation reported so farStatus / Outcome
• In 2016, the European Commission (CEF) granted funding of EUR 187.5 million to the project. The Finnish government will also provide Baltic Connector Oy with funds amounting to EUR 30 million
• Initial cost ~ Eur 3000M
Cost and financing
• Balticconnector is a bi-directional natural gas pipeline project between Ingå, Finland and Paldiski, Estonia, which will connect Estonian and Finnish gas grids
Description
2018 Main contract awarded 2017-2018
2019Commissioning
2015 Full EIA submitted
2014 Contract signed by the Finnish and Estonian prime ministers
2017 Permitting and land acquisition
2007 Feasibility study conducted
2018 Construction and installation works
Estonian side on shore construction
Baltic Connector Oy
Estonian Elring As
Finnish side on shore construction
Finnish government
EU co-financingEstonian
government
Cooperation Agreement
EUR 30M EUR 250M EUR 20M
TIMELINE PHASES AND TIMING INDICATIVE
Key details Timeline (current estimate)
Concepting Planning& Permitting)
Contrac-ting
Construction and testing
Feasibility studiesOpera-tion
58
Nordic Road Agency –The new government road authority was set-up from scratch to identify and implement very ambitious cost improvement targets
• Board is appointed and starts working to get the organization operational by Jan.16
• New company takes over portfolio
• Contract strategy and detailing of efficiency potential
• New company awards its first contract
• Development of capital allocation processes, and project value optimization processes
• The government establishes the separate company
• Construction of first highway starts
• E.g. construction strategy for E39, the largest project in the portfolio (USD 6.5 bn capex)
• New company communicates 8 years reduction in construction time for portfolio from reduced costs and higher efficiency
Impact
• The sum of all projects are estimated to yield cost reduction of 20% and an increase in gross socio-economic benefit of 16%
• Construction time to complete highway portfolio reduced by 40% -from 20 to 12 years
• First awarded contract yielding cost reductions of USD 60 mill
2015 2016 2017
• Country has one of the world’s highest BNP/capita, but is lagging on road infrastructure
• The goal was to setup of a new government owned company given a mission and mandate to build roads better, faster and cheaper
• The company was allocated a portfolio of 530 km 4-lane highway with USD 18 bn capex - to be built over a 20-year period
Background
59
Nordic Road Agency – A new road agency is formed with the ambi-tious targets to cut costs and schedule of new road construction
TIMELINE PHASES AND TIMING INDICATIVE
Challenger mindset
• Bound by existing regulations, but mandated to challenge status quo
• Working to replace many of the 7,500 road requirements by functionality standards
• Negotiating with municipalities to optimize location of main road, crossings, and feeder roads
Independent organization
• Fully state owned limited company with independent Board of Directors at arm's length from politicians
• ‘Promised’ $1bn p.a. over govt. budget plus ~30% toll road financing
• Small, highly skilled team that scales dynamically to project needs
– Attractive employee value proposition
– Significant use of 3rd party services
– Early contractor involvement
High aspirations
• Established as response to high cost and slow execution
• Set up as “public sector start-up” with need to fight for its existence
• Launched early target of 20% cost savings and 40% reduced time to completion
60
Stuttgart 21 – A railway project with complex technical require-ments, multiple stakeholder interests and a long preparation phase
SOURCE: Press search
1 The agreement also made provision for possible increases over the Eur 2.8 B estimate of up to Eur 1 B, with Baden-Württemberg agreeing to fund up to Eur 780 M and DB agreeing to fund up to Eur 220 M. According to the statement, Eur 2 B would also be invested in the railway to Ulm, with the total budget amounting to EUR 4.8 B initially 2 Region of Stuttgart
Key learnings• Planning delays and regulation
changes should be mitigated – can easily cause delays
• It is important to ensure continuity through long planning periods
• Stakeholder management in public projects with large public interest is even more important
Key details Timeline
Feasi-bilitystudies
Concepting
Plan-ning& Permi-tting
Contracting
Construction and testingOpera-tion
2010 Construction begins
Cost and financing
• Cost estimate in 2009 of 4.1 bEUR, rising to 6.3 bEUR in 2016 and to 7.6 bEUR in the end of 2017
• Financed by Deutsche Bahn, State of Baden-Württemberg2 and the Federal Government
Description
• Stuttgart 21 is a railway and urban development project in Stuttgart, Germany. It is a part of the Stuttgart–Augsburg new and upgraded railway and the Magistrale for Europe (Paris—Vienna) in the framework of the Trans-European Networks
• A very large rail infrastructure project (117 km of total track length, 60 km of tunnels, high-speed-rail line, 3 underground stations1)
Status / Outcome
• Construction began in 2010 and completion is expected for 2024 (Expectation in 2017 was 2021)
• The project has been under a lot of questioning and public pressure on its actual efficiency and usefulness after many delays and extensive cost overruns
• Heated debate ensued on a broad range of issues, including the relative costs and benefits, geological and environmental concerns, as well as performance issues
1994 Project officially announced
2021 Expected start of operation in 2017
2024 Expected start of operation currently
2007 Approval given
TIMELINE PHASES AND TIMING INDICATIVE
61
Rail Baltica –EU financed project to connect the Baltic states through a modern rail link
SOURCE: Rail Baltica website; Press search, expert interview
Description
Cost and financing
Key details
Organization
Key learnings and success factors based on expert interview
• Smooth political alignment due to frequent touchpoints between states
• Public hearings were necessary to keep stakeholders up to date
• Full time core team facilitated getting project running
• Competences have been aligned with project phase – change as per need
• The project also highlighted the need for considering technical engineering as a capacity constraint -> flooding the market with requests can cause delays in response and availability
Timeline
• Rail Baltica is a greenfield rail transport infrastructure project with a goal to integrate the Baltic States in the European rail network. The project includes five European Union countries – Poland, Lithuania, Latvia, Estonia and indirectly also Finland.
• The implementation of the Rail Baltica project is financed by the national states — Estonia, Latvia and Lithuania — and co-funding from the European Union up to 85% of the total eligible costs.
• So far, the three Baltic states and RB Rail AS have received two grants designed under the CEF for the construction of the Rail Baltica railway, having signed Grant Agreements to a total value of Eur 765 M.
• RB Rail has submitted a new application for EU funding for Rail Baltica at the beginning of 2017.
RB RAIL AS
ESTONIA LATVIA LITHUANIA
Rail Baltic Estonia OU
Eiropas dzelzcelalinijas
Leituvoz=s Gelezinkeliai
Rail Baltica Statyba
ESTONIA LATVIA LITHUANIA
Rail Baltic Estonia OU
Eiropas dzelzcelalinijas
Leituvoz=s Gelezinkeliai
Estonian Technical Regulatory Authority
Rail Baltica Statyba
Ownership StructureBaltic States – indirect shareholders2 Supervisory board members per country
CEF– 2015 Project implementation structureBeneficiaries –Indirect shareholdersImplementing bodies – Direct shareholders
TIMELINE PHASES AND TIMING INDICATIVE